A fallacy in the ANWR drilling debate: A lesson on scarcity rents and intertemporal pricing under different market structures

R. Morris Coats, Gary Pecquet, Shane D. Sanders

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

It is common knowledge that oil discovered today, or that is newly allowed to be developed, has no effect on prices until reaching the market. However, economic theory does not support common knowledge on this issue. By lowering the value of holding oil for future sale, a future oil supply increase makes it more profitable for firms to produce and sell oil presently. Under three distinct market structures, we use a two-period model to show students that the resulting increase in present supply decreases the present price of oil. Production decisions in the absence of scarcity rents are also discussed.

Original languageEnglish (US)
Article number2
JournalJournal of Industrial Organization Education
Volume4
Issue number1
DOIs
StatePublished - Dec 1 2009
Externally publishedYes

Keywords

  • ANWR
  • Depletable resource regulation
  • Pricing
  • Scarcity rents

ASJC Scopus subject areas

  • Business and International Management
  • Education
  • Industrial relations

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